Is the news that Pernod Ricard is selling its strategic international wine brands to the consortium that owns Accolade Wines a big story shock announcement—or completely predictable? The answer is that both things can be true.
Reaching agreement to sell its Winemakers Division, including brands such as Jacob’s Creek, Campo Viejo and Brancott Estate, is one of the biggest wine deals of the last ten years. These brands account for tens of millions of litres of wine a year, and though the final sale figure has not been disclosed, it will not be small. So yes, this is literally and metaphorically a big deal.
Having said that, Pernod’s wine division has always been somewhat problematic. Never quite profitable enough, never really growing enough, always an afterthought at briefings.
And the memory of an urbane Pernod board member who had to toast the press pack at an event with a glass of sparkling Jacob’s Creek will live long in the memory. He looked like he had swallowed a wasp.
For well over a decade, execs have had to straight-bat away questions about the wine division’s imminent sale, simultaneously affirming their commitment to it while saying that, in principle, they’d be happy to sell if the strategy and the offer were right.
Over the last few years, the statements of love have been less effusive, the rumours of a conscious uncoupling more common and more direct. Increasingly, this disposal has not been a question of ‘if’ but ‘when’.
Indeed, the only surprise, perhaps, is that it’s taken so long. Diageo got $552m for its UK and US wine businesses back in 2015, describing it as “no longer core” to the company’s strategy. It sold off its Argentinian wine business to Peñaflor last year.
It’s likely that Pernod has been trying to dispose of these brands for a good while, but Covid and the period of economic instability since has slowed down the process of finding a buyer. Assuming regulatory approval, the deal should complete late next year.
As interesting as the actual sale is what this disposal says about the state of the wine market. At the volume end, margins are shrinking on a yearly basis. Businesses need to be finely tuned and laser-focused on the logistics and economies of scale to have any chance of success.
Pernod first acquired Jacob’s Creek in 1989, at a time when wine was a category in growth. For the last 15 it has been flatlining at best. So it’s no surprise that non-specialists such as Diageo and Pernod have walked away. The volume market is a tough place to make a living. Even Pernod Ricard seems to have felt it was now too small to operate in this arena.
Move further upscale, however, and it’s a different story. Two years ago, Pernod bought a majority stake in Provence winery Château Sainte Marguerite, adding another 280 hectare estate last year to double its production.
Provence rosé is a category in growth and sells at a premium. By wine standards, its margins are good, and it has a sprinkle of celebrity stardust that, say, Brancott Estate Sauvignon Blanc, lacks.
While the days of Pernod brands filling the wine aisles of supermarkets are gone, we can probably expect to see more judicious additions at the more luxury end of things, where profit and margins are better.
As much as anything, this is a sign that commodity wines are increasingly about squeezing efficiency savings out of logistical and efficiency savings, and luxury—if you can find it—is where the big money and the margins are.
